Navigant Research Blog

In my last blog, I discussed the problems faced by utilities, solar industry stakeholders, and consumers as solar distributed generation uptake accelerates and legacy business models are shaken to their core.

Nowhere have the problems with pro-solar policies become as clear as in Germany, where solar power accounted for 22% of generation in 2012. But while Germany is often touted as a model of green success, the fact is that 1) German electric customers are paying about twice as much as they should for their electricity, 2) the major German utilities are suffering severe financial strain, and 3) Germany’s carbon emissions actually increasedin 2012.

No Nukes, More Carbon

German leaders made the decision to rapidly decommission nuclear generation in the wake of Japan’s Fukushima Daiichi disaster. To take up the slack, the government gave priority to individual solar (and wind and biofuels) generators over the utilities. In other words, these private generators were guaranteed a market for their excess energy. On June 16 of this year, solar and wind installations generated so much power that utility-owned generation plants sat idle and the wholesale prices for energy actually went negative for a time. In response, utilities are scrambling to reduce costs, including burning more brown coal, or lignite – one of the most carbon-intensive fuels. As a result, Germany’s carbon emissions increased by 1.6% in 2012 versus 2011.

As for points one and two above, German consumer electric rates are higher than just about anywhere else in Europe, and more than half of that is due to taxes and fees to cover renewables programs. The average German pays $387 per megawatt. Finally, the major electric utilities have seen their profits shrink and their market caps fall precipitously. Shares in both RWE and E.ON fell to 10-year lows earlier this year and earnings have been disappointing, putting thousands of jobs at risk.

Subsidies to Sales

Angela Merkel’s newly reelected government has acknowledged the need for energy industry reform. On September 27, 2013, German utility lobby BDEW presented a plan recommending an end to guaranteed feed-in tariffs for new renewable installations and a decentralized capacity market. The proposal suggests that green power operators must also be responsible for grid security and other technical issues and that the amount of electricity that receives support should be limited. BDEW head Hildegard Mueler said that “Subsidy recipients must turn into merchants.” Because Merkel’s coalition no longer holds an absolute majority, it remains to be seen whether any reform can be achieved in the near term. Meanwhile, the head of the German energy agency Dena has estimated that German electricity consumers may have to pay a third more for subsidies by 2014.

There are environmental benefits to these higher electric rates, but the hard truth is that a transition from a century-old business model to a new one simply can’t happen in a handful of years without there being collateral damage.

In my next blog, I’ll examine what’s happening in the United Kingdom, as feed-in tariffs there have fallen sharply in recent years.

With nearly 70% of global biofuels production centered on the United States’ corn and Brazil’s sugarcane harvests, concentrated commodity feedstocks have been the common denominator in biofuels industry growth over the past decade. Advanced biofuels companies seeking to produce next-generation fuels derived from non-food feedstocks are attempting to replicate this model – without the associated social and environmental externalities of using food-based crops. Access to land for mass feedstock production is a difficult challenge for which many innovative strategies have been proposed.

Companies like SG Biofuels, Ceres, and others are squarely focused on biotechnology innovation, involving complex biological modifications at the crop’s cellular and genetic level. The central focus of these efforts is the optimization of dedicated energy crops for growth in a variety of locations where food crops are not currently grown, including poor soils and areas lacking irrigation. Among these, jatropha, camelina, energy grasses like miscanthus, and dedicated trees like eucalyptus have received the most attention.

But optimizing crop strains to thrive in a variety of climates and soils is only half the battle. Recent experience has shown that the success of even miracle next-generation feedstocks like jatropha, which can produce oil-rich seeds in poor soils and without irrigation, is exaggerated. As with food crops, bountiful energy crop harvests (i.e., lots of biomass material for biofuels production) require irrigation and nutrients.

Land Ho!

Meanwhile, finding suitable tracts of land with nutrient-rich soil and irrigation for which a large quantity of crops can be grown – but without diverting land otherwise dedicated to food production (see The New York Times blog on food vs. fuel) – remains an elusive goal. Increasingly, governments and corporations are looking abroad.

Since the food crisis of 2007-2008, foreign direct investment into countries with undeveloped agricultural potential has accelerated. According to data compiled by the Oakland Institute, an estimated 56 million hectares of land (nearly the size of France) has been acquired in the developing world by international governments and investors since 2008.

Last month, China announced that it will invest billions of yuan into 3 million hectares (7.5 million acres) of farmland in Ukraine, its biggest overseas agricultural project. This will more than double China’s current portfolio of 2 million hectares (5 million acres), mostly concentrated in Latin America and Southeast Asia.

China is not alone in this quest. According to a policy paper published by the Woodrow Wilson International Center, “One of the largest and most notorious deals is one that ultimately collapsed: an arrangement that would have given the South Korean firm Daewoo a 99-year lease to grow corn and other crops on 1.3 million hectares of farmland in Madagascar – half of that country’s total arable land.” Government and institutional investors across other developed economies, including Japan, the United States, the European Union, and wealthy Gulf states, are all actively involved in this rush.

Complicated by the checkered history of international land grabs, this trend is not without its critics.

Balancing Objectives

While intentions may be in the right place in most instances, the past has shown that consolidation of cultivatable land for foreign or multinational interests can often lead to the displacement of local subsistence farmers, as well as other negative environmental impacts. In recent years, governments have, at least publicly, imposed more restrictions on biofuels investments abroad to prevent a scramble toward destructive plantation-style feedstock cultivation.

The EU’s Renewable Energy Directive (RED) mandates that member states derive 10% of energy consumption within the transportation sector from renewable sources by 2020. Recently signed legislation caps the contribution of conventional food-based biofuels, calling for a rapid switch to advanced biofuels. A slew of sustainability standards, meanwhile, aim to mitigate the negative impacts of large-scale dedicated energy crop production for advanced biofuels.

In Navigant Research’s recently published report, Advanced Biofuels Country Rankings, issues such as available arable land and potential for sustainable feedstock hubs figure heavily into assessments of the potential of individual countries to support advanced biofuels commercialization. At one time regarded as an issue exclusively focused on conventional biofuels, access to land for advanced biofuels production is proving equally sensitive.

For EV drivers to use public charging equipment to its fullest (and for charging networks to make money providing the service), the experience must be simple and uncomplicated. While today’s public charging experience is quite the opposite of that in most locations, there is considerable industry movement toward open standards that will someday enable drivers to plug in almost anywhere.

Currently, many EV charging networks have proprietary systems that require a personal identifying device, such as a fob or contactless card, to initiate charging. The networks have legitimate business reasons to push customers toward signing up for membership plans. However, based on the lackluster usage rates of public charging so far, a common framework for sharing data and customer authorization that exists apart from payment schemes is needed.

The Open Charge Alliance, which started in Germany and spread throughout Europe, recently landed in North America and aspires to unite all chargers globally. The 50+ participating companies use the Open Charge Point Protocol (OCPP), which enables charging stations to connect with each other within a network or data to be aggregated across networks. Interoperability is important because it allows charging equipment to be centrally managed regardless of the hardware. It also enables charging station information to be aggregated and shared with drivers regardless of the software and systems used by each network provider.

Pay as You Go

The Open Charge Alliance made its U.S. debut at Plug-In 2013 in San Diego. The group announced that an updated OCPP 2.0 standard would soon be out, supporting “pricing, smart charging, and charging station health and maintenance, including device event notification and statistical reports.”

U.S.-based companies, including Greenlots, ChargePoint, Eaton, and EV Connect, have gotten on board with the standard. As a result, data about the concentration of EV charging events across networks can be tracked for the first time and vehicle data can be passed between networks. This is important for utilities to be able to understand how the proliferation of EVs is affecting load. If the standard becomes ubiquitous, it will enable hardware to be easily swapped out, making the market even more competitive. Fleets can buy EV chargers from multiple suppliers and not have to worry about being tied into a single vendor’s software solution.

On top of this basic communication are payment systems, which can share personal account information and transaction data. In Europe, Hubject is emerging as a common payment platform. In the United States, the poorly timed Collaboratev venture (between networks ChargePoint and now defunct ECOtality) has been challenged by a new system from Recargo.

EV drivers can’t wait for the day when initiating a charging session at any location is as consistent and simple as withdrawing cash from an ATM. Once this happens, the motivation to plug in whenever a charger is close by will increase significantly.

The Plug-In 2013 show in San Diego highlighted some key trends in the plug-in vehicle (PEV) and PEV charging markets. In addition to the issues of interoperability and payment systems, below is a round-up of some themes that emerged this year.

There were some noteworthy absences from this event, providing evidence of EV charging industry consolidation. The two absences that loomed largest were Better Place and ECOtality, both of which have declared bankruptcy. Many conference participants are worried about the effect the failure of these two companies could have on the industry by creating a perception that these investments – both from the government and the private sector – were wasted. The Better Place and ECOtality experiences are really quite different. Better Place failed because of a very risky technology concept. ECOtality promoted a conventional charging solution but suffered from a poor business case. That said, what they do have in common is they could have a chilling effect on private investors’ enthusiasm for funding startups in this sector.

PEV Choice Expands Dramatically

The strong automaker presence at the show highlights the proliferation of PEV models available or coming to market in North America through 2014. Both Nissan and Chevrolet had a major presence, with Nissan touting its MY2013 LEAF and its larger onboard battery charger. The exhibit hall also featured PEVs from Ford, BMW, Honda, Mitsubishi, and Toyota. Based on my conversations, the BMW i3 generated the most buzz, followed perhaps by the Chevrolet Spark. Those are also two of the first PEVs to be compatible with the new SAE combo fast charger plug. Navigant Research’s report Electric Vehicle Charging Equipment projects that DC charger sales will rise rapidly in North America after 2014, as more SAE-compatible cars are on the road.

Annual DC EVSE Unit Sales by Country, North America: 2013-2022

(Source: Navigant Research)

DC Charging Comes to the Fore

There was a surprising level of comity around the DC charging market, given that the market is still grappling with the dueling standards issue. In the DC charging panel, Nissan’s Brendan Jones and BMW’s Cliff Fietzek each touted the importance of fast charging as part of the total charging puzzle for their customers. They agreed that the first priority is putting DC chargers within the community to serve customers who need an emergency charge or simply want to extend their daily range. They also agreed that using DC charging to create intercity electric highways is not a high priority right now. Interestingly, although Nissan has backed the CHAdeMO plug, Jones sounded supportive of all standards and did not seek to argue against the SAE standard. Fietzek argued that the combo plug is easier for the EV driver and lighter for the vehicle.

There is increased interest in lower power DC chargers and whether they may be more commercially viable than 50 kW chargers. The major advantage of these chargers is the lower price tag. They also can help charging installation hosts avoid demand charges, a serious cost issue that could hinder the DC charging market. Interestingly, the DC charging panel did not necessarily see higher power AC charging as a viable alternative to the DC charging market, at least not in the United States. Fietzek noted that the OEMs would rather remove weight and cost from the vehicle not add to it by putting on ever higher power chargers. As a result, the United States may not see a push for ever higher power AC charging as parts of Europe have.